Yes, California Tax Credits Work, but Exodus Continues

Eight months after California lawmakers passed a five-year, $500 million entertainment industry tax credit, production companies have exhausted the first year’s allocation of $100 million and are now drawing from the second.

“I’m thrilled by the early success of our program,” the governor said.

That’s the good news.

The bad news is that California continues to lose scores of projects to states with more generous incentives.

“More pictures would stay here in California if more money was available for tax credits,” said Jeff Begun, founder of the Incentives Office, a Santa Monica company that navigates incentive programs for production companies.

California’s new program includes a 20 percent tax credit for film projects and a 25 percent tax credit for television series. A minimum of $10 million is available each year for independent films.

Schwarzenegger said 36 film and TV productions are set to shoot during the last quarter of this year as a direct result of the program.

Still, California is not as aggressive as other states.

Citing data from 2008, a report by the Motion Picture Association of America said 40 states have found movie and television production beneficial enough to their economies that they have enacted specific incentives to increase production.

Production in at least half the states was higher in 2008 than 2007, the report said.

California and 15 other states offer refundable income tax credits, according to the latest update by Entertainment Partners, a Burbank-based production management company. Another 16 states offer rebates, 11 offer transferable income tax credits, Delaware has a loan program and Texas offers grants.

Michigan and New Mexico are now among the most active states competing for production, along with Massachusetts and Louisiana, said Begun. The Canadian cities of Toronto and Vancouver have been production magnets for decades, in part because in Canada, production companies can get tax credit refunds from the federal and provincial governments.

Only two states seem to be struggling with the issue. Pennsylvania enacted a tax credit in 2007, capped at $75 million, that is now being reduced to $42 million. Iowa has a different problem: Its incentive program was suspended while a criminal investigation determines whether tax credits were applied illegally.

“California is still behind the curve,” said Karyn McCarthy, a film production manager and producer of Drew Barrymore’s “Whip It.” The film, which had a budget under $20 million, is set in the fictitious Bodeen, Texas, but was shot almost entirely in Michigan, a “state to watch,” according to the MPAA.

McCarthy said she did comparative budgets for shooting in California, Texas, Louisiana, New Mexico and Arizona. Then in April 2008, Michigan enacted one of the most generous film production programs in the country. It provides a 40 percent rebate for all expenditures in state, including salaries. An additional 2 percent is available for shooting in any of 103 so-called “core communities.”

“Whip It” was shot in three of them: Detroit, Ypsilanti and areas of Saginaw County.

“So many things are being shot here,” McCarthy said, “when I walk around the hotel lobby, I bump into friends from California working on other projects.”

Over the last eight months of 2008, when Michigan offered the new incentives, production companies made 35 films there and spent $125 million, about $40 million of which was returned to the companies, said Michael Shore, a spokesman for the Michigan Economic Development Corporation. For all of 2007, he said, three films were shot in state and companies spent $2 million.

“We’re looking to create an industry here,” he said, adding that Hollywood-based Raleigh Studios is one of three L.A.-area companies planning to build permanent production facilities in Michigan.

New Mexico, another “state to watch,” is also drawing away projects by building an in-state film industry, said Mark Burton, president of production for IndieVest, an L.A.-based independent film studio and financing company. His company recently shot “Saint John of Las Vegas,” with a cast that includes Steve Buscemi and Sarah Silverman, almost entirely in New Mexico.

“They’re being very smart about how they’re structuring it,” Burton said. “They’re doing it very, very efficiently, and they’re very, very friendly for production companies.”

California has the additional burden of trying to boost the industry during the state’s worst economic conditions in generations.

“Unfortunately, California is in a very tough spot,” said Burton. “You look at the issues we have, cutting services in health care and education, and it’s just devastating. There is a need to hold onto our core industries, but there’s only so much the state can do.”